Asian debt spreads swelled to their widest in more than a month on Wednesday as weak US housing data fuelled concerns its economic recovery is stalling, while Philippine issues extended losses on profit-taking. The Asia ex-Japan iTraxx investment-grade index widened 3 basis points (bps) from Tuesday's close to 131 bps, traders said, its highest since July 8.
The investment-grade Markit iTraxx Europe index was little changed at 114 bps versus 115.50 bps late on Tuesday. "The constant gloom-and-doom argument is what's driving negative sentiment in the market," a Hong Kong-based trader said. "Now that global economic data is showing signs of slower growth, that's driving momentum for double-dip chatter."
Rising global economic uncertainty drove Asian shares lower, with Japan's Nikkei at a 16-month low, while the yen hovered near a 15-year high against the US dollar.
But some investors said there was an upside to the weakening US economy because that would mean the Federal Reserve would likely keep interest rates at near zero longer. "The Asian bond market will continue to do well given that the general macro picture, especially in the United States, remains quite bearish," said Arthur Lau, portfolio manager at JF Asset Management in Hong Kong.
The upbeat earnings outlook for Asian companies would also help lift demand for corporate credits in the region, Lau added.
In the Philippines, sovereign bonds extended losses as investors pocketed gains after a recent record high. The country's debt due in 2020 slipped to as low as 119 cents on the dollar early in the session, before settling at 120, down a quarter point from the previous day, Manila-based traders said.
"There are still buyers on dips. When the bond hit 119, some buyers emerged," one trader said.
On the corporate side, Hongkong Land Holdings Ltd's bond due in 2014 was steady and traded at 120 bps above US Treasuries, supported by debt rater Moody's Investors Service's statement that it was reviewing the company's A3 rating for a possible upgrade.
Moody's cited the company's strong liquidity, revenue growth and high occupancy rates for the planned rating upgrade. Korea Electric Power Corp's bond due in 2015 widened 5 bps over US Treasuries on market talks that it would sell dollar bonds.
A banker said he would not be surprised if state-run KEPCO issued debt since it needed to fund the acquisition of a 20 percent stake in Indonesian coal miner Bayan Resources PT.
On the credit default swaps (CDS) front, the iTraxx SovX Asia Pacific index, which tracks the 5-year sovereign CDS of 10 countries in the region, widened 2 bps to 121.
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